Learn how to reduce your taxable income and manage your Social Security taxes
- More than half of retirees will pay tax on their Social Security benefits
- Income thresholds for taxation of Social Security haven’t changed in decades
- Managing taxes on Social Security requires careful planning
- Charitable donations and Roth conversions can help reduce taxable income
In 2024, the Social Security cost-of-living adjustment will raise benefits 3.2% and the income-tax brackets are going up an average of 5.4%, both because of inflation. But what will not change is the threshold for how much income triggers retirees to pay tax on their monthly benefits. And that means that next year, more than half of all those receiving government retirement checks will pay tax on what they get. Among those who file a tax return, that number goes up to 72% or more paying taxes on Social Security benefits, according to IRS statistics. The income thresholds for the taxation of Social Security haven’t budged in decades. This is the basic rubric: Singles with modified adjusted gross income between $25,000 and $34,000 may have to pay federal tax on up to 50% of benefits. Singles who make more than $34,000 could be taxed on up to 85% of benefits. Married filing jointly is between $32,000 and $44,000 for the 50% threshold, and more than $44,000 at 85%. The issue is compounded by a similar issue with Medicare surcharges known as IRMAA, which adds to the cost of healthcare benefits for those with modified adjusted gross income over limits that are also not regularly adjusted for inflation. The first IRMAA threshold for 2024 will be $103,000 for single people or $206,000 for married couples filing jointly, and that goes up over six tiers, until you get to over $500,000 for single people or $750,000 for couples. The first key to managing taxes on Social Security is to understand them and plan your spending accordingly. One way to do this is with a sizable charitable donation that you can make directly from a qualified retirement plan that is subject to required minimum distributions. A qualified charitable distribution (QCD) could reduce your yearly income up to $100,000, depending on how much you give. A strategy of Roth conversions to reduce the amount you have to take in required minimum distributions each year could also help, but you have to make sure to avoid high income in the two years before Medicare enrollment as well. One pro tip is to use the taxation of Social Security to your advantage and elect the highest withholding you can. Learn more about managing taxes on Social Security and Medicare.
Factuality Level: 7
Factuality Justification: The article provides information about the Social Security cost-of-living adjustment, income-tax brackets, and the threshold for paying tax on Social Security benefits. It also includes statistics from the IRS and quotes from tax specialists and financial planners. However, the article does not provide a comprehensive analysis of the topic and could benefit from more in-depth research and explanation of the issues.
Noise Level: 6
Noise Justification: The article provides information on the taxation of Social Security benefits and the lack of adjustment for inflation in income thresholds. It also mentions the issue of Medicare surcharges. However, the article contains some repetitive information and does not provide a thorough analysis of long-term trends or solutions to the problem.
Financial Relevance: Yes
Financial Markets Impacted: No
Presence Of Extreme Event: No
Nature Of Extreme Event: No
Impact Rating Of The Extreme Event: No
Rating Justification: The article discusses the taxation of Social Security benefits and how it affects retirees. While it is financially relevant, there is no mention of any extreme events or their impacts.
Key People: Phyllis Jo Kubey (tax specialist and financial planner), Harry Sit (founder of TheFinanceBuff.com), Devin Carroll (Social Security expert and founder of Social Security Intelligence), Ryan Losi (CPA and executive vice president at PIASCIK), Meena Seshamani (Medicare representative), Chris Christie (politician)
www.marketwatch.com 
